If the Ice Cream Industry Is a Competitive Price-Taker Market

question 14

Multiple Choice

If the ice cream industry is a competitive price-taker market and all ice cream producers are earning zero economic profit, what will be the impact of an increase in the demand for ice cream?

• A) Firms will exit the ice cream industry in the long run since they are earning zero economic profit.
• B) The firms will now be able to earn long-run economic profit assuming that barriers to entry remain low and new firms can enter the market.
• C) A shortage of ice cream will develop.
• D) The price of ice cream will rise initially, inducing the existing firms to expand output and new firms to enter the industry.